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Recent Changes to the Healthcare Bill | Tax Tip of the Week | No. 64 October 27, 2010

Posted by bradstreetblogger in : Healthcare, Tax Tip , add a comment

Tax Tip of the Week | October 27, 2010 | No. 64

Recent Changes to the Healthcare Bill – Already

Recently Released IRS Notices

Healthcare bill changes in 2011The IRS recently released Notice 2010-69 which says, in part:

“Provides that reporting the cost of coverage under an employer-sponsored group health plan on Form W-2, Wage and Tax Statement, pursuant to § 6051(a)(14) of the Code, will not be mandatory for Forms W-2 issued for 2011.”

What does this mean?  First some background.

Several months ago we ran a series of Tax Tips regarding the new Healthcare Bill.  One of the Tax Tips explained that starting in 2011 it would be required that employers show the cost of employer-sponsored group health costs on the employees W-2.

With this new Notice, the IRS is making it optional to report group health care costs in 2011.  The IRS is acknowledging that it may take some employers more time to get into compliance on this reporting requirement.
Is this just the first “push back” change against the Healthcare Bill?

We’ll keep you posted.

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

New IRS Audit Focus | Tax Tip of the Week | No. 63 October 20, 2010

Posted by bradstreetblogger in : Tax Deadlines, Tax Tip, Uncategorized , add a comment

Tax Tip of The Week | October 20, 2010 | No. 63

New IRS Audit Focus

IRS Audits We Haven’t Seen In 25 Years

Employment Tax Audits

The IRS is in the process of auditing 2,000 firms, and will be auditing an additional 6,000 firms in the upcoming years.  While similar to traditional audits, these Employment audits will focus more on employment tax and compliance issues.  An IRS spokesperson said, “A National Research Project (NRP) is the first the agency has undertaken in 25 years.  During that time business practices have changed significantly, prompting the need for this study”.

In particular, the IRS is looking for data that will allow for a better understanding of just how well corporate tax filers comply with regulations.  Equally important, the agency is looking to boost its knowledge of the “employment tax “gap”.  The tax gap is the difference between the amounts that taxpayers should pay, and the amounts they actually pay on a timely basis.

Key components of the audit will include:

–          Worker Classification:  The question of whether a worker is an employee or an independent contractor.

–          Executive Compensation:  This includes non-salary compensation such as loans, travel, deferred comp, and                        stock-based compensation.

–          Fringe Benefits:  To ensure that proper tax treatment is given to such perks as company cars, club dues,                                 cafeterias and bonuses.

–          Payroll Taxes:  Close attention will be given to timely and accurate payments of payroll taxes.  In addition Form                W2 and Form 1099 compliance will also be audited.

As we have stated many times here, your best defense in an audit is accurate recordkeeping.

We encourage you to call us to make sure your employment records are in compliance before the IRS comes knocking.

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our web site.

Rick Prewitt – the guy behind TTW

…until next week.

Financial Statements – How They Can Help | Tax Tip of the Week | No. 62 October 13, 2010

Posted by bradstreetblogger in : Business consulting, Business Consulting, Tax Tip , 1 comment so far

Tax Tip of the Week | October 13, 2010 | No. 62
Financial Statements – How They Can Help

Analyzing Your Financial Statements
How financial statements can help grow your business.
You are working hard, very hard.  In fact, you have never worked so hard in your life.  Your employees are also working hard.   Therefore, your business must be doing, amazingly well.  Right?  BUT…your bank account is nearly empty, your desk drawer is full of checks that you can’t mail, and your line of credit is maxed.  So, what is wrong – where is all the cash going?  Often, the mystery may be explained by analyzing your financial statements.
You will want to use at least the following reports:

(1)  The Balance Sheet – this is a record of your business’s assets, liabilities, and equity as of a certain moment in time or a snapshot.
(2)  The Profit and Loss Statement or aka the Income Statement – this is a recap of your business’s sales, expenses, and net profit (or loss) over a specific period of time.
(3)  The Cash Flow Statement – this will show a recap of the actual increases and decreases of cash coming into and out of your checking account.

Analytical Analysis

Use your financial statements to compute your ratios or metrics.  Learn which ratios are typically used by your industry.  Compare your results to these ratios.  Some of these ratios may include – aging of accounts receivable and accounts payable, inventory turnover, gross profit margins and a percentage of net income to sales – just to name a few.   All of these and more will help you provide a scorecard on the health of your business and explain what is going on behind the scenes.  For example, is your cash funding higher accounts receivables and higher inventory levels because of double digit growth in your sales?  Or, is your cash funding an operating loss because your sales are not high enough to cover your overhead? Your financial statements will also show you why your checkbook balance has little value in determining your profits.

Flash Reports

In addition to using monthly financial statements many companies will also use the underlying data for them to create daily or weekly flash reports.  One rule for flash reports is they should not exceed one page – keep them short.  They typically include the information necessary to drive the business forward to meet your strategic plan.  For example, they may show the sales or parts produced for the preceding day as compared to a predetermined target in an effort to change direction and methodology as needed on a very short notice.

Side note:  Timely (within 10 days following month end) and accurate financial statements that use the accrual method of accounting (i.e. where accounts receivable, inventory, accounts payable and various accrued liabilities are recorded) is crucial.  One cannot expect to make great decisions from poor information or information that is outdated.   And, don’t forget the IRS expects accurate reporting as well.

This week’s author: Mark Bradstreet, CPA

Rick Prewitt – the guy behind TTW

…until next week.

Section 179 Depreciation Deduction | Tax Tip of the Week | No. 61 October 6, 2010

Posted by bradstreetblogger in : Deductions, Tax Tip , 1 comment so far

Tax Tip of the Week | October 6, 2010 | No. 61
Depreciation Deduction

Section 179 Depreciation Deduction

Accelerate depreciation on your equipmentIf you’re a business owner, you are probably familiar with Section 179 and its benefits.  Section 179 allows business owners to fully deduct certain equipment purchases in the year they were purchased rather than depreciating the expense over several years.  To qualify, property must be used more than 50% in a trade or business and be acquired from an unrelated party.

Under The Small Business Jobs Act, you can now write off up to $500,000 of qualified business assets placed in service in tax years beginning in 2010 & 2011.  Without this law the maximum deduction would have been $250,000.  The maximum deduction phases out dollar-for-dollar for purchases exceeding a specified threshold.

The Small Business Jobs Act also extends a Recovery Act provision for Section 168 “Bonus Depreciation” allowing for up to 50% of the cost of new assets to be depreciated in the year of purchase.

For 2012, it looks like the maximum Section 179 deduction will be decrease to $25,000.

We’ll keep you posted.

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.

This week’s author: Dawn Bradstreet, CPA

Rick Prewitt – the guy behind TTW

…until next week.

Create a tax break-buy your parents’ home | Tax Tip of the Week | No. 60 October 5, 2010

Posted by bradstreetblogger in : Deductions, Tax Tip , add a comment

Allow your parents to enjoy their home stress freeDo you have aging parents that live in an appreciated home, but no longer reap any tax benefits from ownership? For example, their home is paid off and there is no mortgage interest deduction for them to deduct.

By buying your parents’ home, and then rent it back to them at the going market rate, they would gain instant access to their home equity (without moving) and you’d pick up some generous tax deductions.

To avoid gift-tax consequences, you need to pay a fair market price for the home.  Be sure to support the purchase price with a qualified appraisal.  Then, both sides should enter into a lease at a fair-market rental value.  Note:  tax courts have ruled that landlords can reduce the fair-market rent by 20% when renting to relatives because of the reduced maintenance and management costs.

Once that is accomplished, you would then be entitled to reap the tax benefits of owning a rental property.  This would include write-offs for mortgage interest, property taxes, utilities, maintenance, insurance, etc.  You would also be able to take a depreciation deduction based on the purchase price of the home (but not the land value).  If your parents live out-of-town, you could realize a bonus benefit of deducting travel expenses for an occasional visit to inspect your rental investment!

These deductions would offset the rental income you receive from your parents.  Any allowable tax loss would begin to be phased out if your adjusted gross income exceeds $100,000.

Eventually, your parents won’t be able to live in the house any longer.  Then, you can sell it, rent to someone else, or move into it yourself.  If you move into the home and make it your principal residence for at least two years, you could then sell it and shelter another $250,000 or $500,000 in capital gains!

This is only a simplified example.   If you want to consider this tax strategy, we strongly urge you to call us first.

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.

Rick Prewitt – the guy behind TTW

…until next week.